Adjustment to Rate Band help please

Homebuyer78

I'm hoping to get some help around my income tax for this year / last, as what I have read makes little sense to me. Due to a promotion in May of last year, alongside overtime payments, I have tipped into the higher rate tax banding. My second job is at the same place incase it makes any difference. Upon opening my pay packet last week, I noticed that my Tax Code on my main job has been adjusted down to £9715, as opposed to the £12,500 I was expecting. I have logged onto my HMRC account, and have noticed that £3,149 has been taken off my tax code for this year coming due to 'adjustment to rate band'. As before, despite reading around, I cannot work out the maths behind this.

The figures that I have for the 2019/20 tax year are:

Main Job earnings £48,179.42 (Tax code £1286L)
Overtime earnings £7,497.05 (Tax code BR)

Total £55,676.47

Another pay rise a few weeks back will make my pay in the region of £53,300 for the 2020/21 tax year, and I will likely earn about the same in overtime in the next 11 months. I thought at first my tax code had been adjusted to compensate for me not paying higher rate tax on the £5,676.47 that I am over the £50,000 threshold, but that would mean that I owe the taxman an extra 20% of £5,676.47, so about £1100. It seems that any requests to pay back tax owed however come out in June to October time, so this isn't that. From what I have read, the adjustment to rate band seems to be applied where you have two jobs, and the taxman is trying to split your allowance between both of them? So, it is allowing me £9715 of tax free earnings on my main job, and then giving me the other £3k or so on my secondary job. I'm not sure if I have that right?

I am going to call them on Monday whilst at work (as opposed to on my weekend) to query what has happened, but can anyone give me a VERY layman's explanation of whether or not these figures seem right? Losing the £3k or so of tax allowance alongside higher pension rates has seen me take a £200 a month pay decrease which is depressing given I had a £3,500 pay rise for April just gone. Thanks in advance for any help you can give.

[Deleted User]

Reducing your personal allowance by 3149 will result in additional tax of £1259.60 (3149 x 40%) so it does look like HMRC are attempting to ensure that you don’t incur another underpayment in this tax year, 2020/21 based on the information that they hold. Check what HMRC estimate your income to be this year and revise it if incorrect. However, do you not pay into a pension?

Sorry - noticed that you do. What is your income after pension contributions?

Homebuyer78

purdyoaten2 said:

Reducing your personal allowance by 3149 will result in additional tax of £1259.60 (3149 x 40%) so it does look like HMRC are attempting to ensure that you don’t incur another underpayment in this tax year, 2020/21 based on the information that they hold. Check what HMRC estimate your income to be this year and revise it if incorrect. However, do you not pay into a pension?

Thanks for the reply. That makes sense, and I didn't think to work out by 40% of the £3149. I do pay into a pension. I pay 12.5% of my gross income into the scheme (NHS). My income from my main job this year will be £53,000 give or take a few pounds, so to my calculations I will pay about £6500 into the pension this year? Would I be correct in assuming that I shouldn't be paying any tax on pension contributions, therefore my pension payments should bring me under the higher rate threshold - £53,000 - £6500 = £46,500 or thereabouts? 

If I were to then earn another £7000 or so in overtime, this would then push me back up into the higher rate by a few grand, and I appreciate then I would owe higher rate on that. Is this where the deduction has come from? HMRC are assuming that I will earn £3,149 over higher rate threshold due to my overtime, and therefore are taking this deduction as a prediction of this for 2020/21?

Homebuyer78

Does this then mean that should I do no overtime (unlikely) then I will be due a tax refund at the end of the 2020/21 tax year? Also, I am assuming then that I am awaiting a £1100 tax bill sometime over the summer for what I didn't pay in income tax for the 2019/20 year? It won't be welcome of course, but I am prepared for it and have made appropriate savings.

[Deleted User]

Step by step:
2019/20  What is your salary after pension contributions? That is what matters? I have a lot of experience on the NHS pension scheme and know that your contributions may be less than 12.5% of all of your earnings as hours in excess of 37.5 per week are not pensionable.
2020/21 : Tell the taxman on Monday what you reckon your earnings after pension contributions will be this tax year and get your code adjusted accordingly. Phone at 7.59 😊- you should be answered quickly then.

Homebuyer78

purdyoaten2 said:

Step by step:
2019/20  What is your salary after pension contributions? That is what matters? I have a lot of experience on the NHS pension scheme and know that your contributions may be less than 12.5% of all of your earnings as hours in excess of 37.5 per week are not pensionable.
2020/21 : Tell the taxman on Monday what you reckon your earnings after pension contributions will be this tax year and get your code adjusted accordingly. Phone at 7.59 😊- you should be answered quickly then.

My basic salary in 2019/20 was about £49,000. I would have had 1 month paying 9% pension contribution, and then when promoted to my new banding, I would have paid 11 months at 12.5%. I haven't had any pension deducted from any of my overtime payslips - I have just checked a few. 

It seems that I can update my estimate of earnings through the online system now - there was a link to follow to update for both my main income and my overtime income, so to save me sitting in that queue, I will give that a go and see what happens. It asks for my income once pension deducted, so I can key in £46,500 or so for that, and I will adjust down my overtime by a couple of grand as it will likely be less this year as with COVID they are limiting what we can do at the moment so we don't all burn out. That should at least make some impact in my income for the coming 11 months. 

[Deleted User]

Based on that your taxable salary including overtime was around £50750 in 2019/20 and so you only owe around £150. I wouldn’t expect a calculation too soon - my brother in law only received his 2028/19 one yesterday!

I agree your approach with regard to this tax year.

Good luck - I hope that you are reassured.

Homebuyer78

purdyoaten2 said:

Based on that your taxable salary including overtime was around £50750 in 2019/20 and so you only owe around £150. I wouldn’t expect a calculation too soon - my brother in law only received his 2028/19 one yesterday!

I agree your approach with regard to this tax year.

Good luck - I hope that you are reassured.

Aha, magic. I was budgeting for a tax bill of about £1100, but that was because I didn't take my pension contribution out of that before doing the calculation. So, with basic earnings of £49,000 or therabouts, I would have lost about £6,000 to pension, and then earned about £7,500 overtime, so as you say, that puts me only slightly into the higher rate bracket. You've made my night, thanks for taking the time to share your knowledge - I am good at fixing people, not my tax return...

I'll spend some of the money that I had put aside for a takeaway I think...

Dazed_and_C0nfused

The figures that I have for the 2019/20 tax year are:
Main Job earnings £48,179.42 (Tax code £1286L)
Overtime earnings £7,497.05 (Tax code BR)
Total £55,676.47

Are these figures your taxable earnings i.e. the figures which will go on your P60's?

Homebuyer78

Dazed_and_C0nfused said:

The figures that I have for the 2019/20 tax year are:
Main Job earnings £48,179.42 (Tax code £1286L)
Overtime earnings £7,497.05 (Tax code BR)
Total £55,676.47

Are these figures your taxable earnings i.e. the figures which will go on your P60's?

Yes, I believe so. I earn both through PAYE, so I am assuming that the full amount is reported to HRMC and taxed accordingly? 

Dazed_and_C0nfused

In that case you will owe c£1100 for last year.

The NHS usually operate a "net pay" pension scheme, the beauty of which is you get the maximum possible tax relief each month and never have to tell HMRC about them as they simply reduce the amount of earnings which are taxable. 

For example if you earned say £55k but we're contributing 12.5% under a net pay scheme then your taxable income would only be £48k and it is this figure which is reported on your P60.

So if your P60's are going to show £48k + £7.5k then you are about £5.5k into the higher rate bracket but have paid no higher rate tax.

If your pension scheme is net pay (you should be able to tell by checking your March payslip) then you can simplify things by ignoring the pension contributions and just looking at your taxable pay figures.